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Canadian Cannabis
Neil Maruoka, MSc, MBA | Analyst | Canaccord Genuity Corp. (Canada) | nmaruoka@canaccordgenuity.com |
Canadian Equity Research 1.416.869.3073
29 June 2017 Matt Bottomley, CPA, CA, CBV | Analyst | Canaccord Genuity Corp. (Canada) | mbottomley@canaccordgenuity.com |
1.416.867.2394
Matthew Reitsma | Associate | Canaccord Genuity Corp. (Canada) | mreitsma@canaccordgenuity.com | 1.416.869.7703
SPECULATIVE BUY
unchanged
PRICE TARGET C$3.25
unchanged Company Update
Price (28-Jun) C$2.16
Ticker ACB-TSXV
Aurora provides positive update
52-Week Range (C$): 0.05 - 3.95 Aurora has provided a positive update on its Canadian operations, highlighting solid
Avg Daily Vol (000s) : 2,873.1
Market Cap (C$M): 805
patient growth and accelerating sales of cannabis oils. The company reported more than
Shares Out., Basic (M) : 360.5 16,000 active registered patients, a 22% increase since the end of Q3 (March 31). With
Shares Out., Basic + Dil. (M) : 381.3 the launch of its cannabis oils products in April 2017, the company announced record
Total Return to Target (%) : 54.0 monthly revenue in May of $2.4 million, a 38% increase over the average monthly sales
Net Debt (Cash) (C$M): (58)
for the third quarter (January through March of this year). Additional updates included
Long-Term Debt (C$M): 103.7
a modest price increase in May, a two-year license renewal for its existing production
FYE Jun 2016A 2017E 2018E 2019E facility, and a vault upgrade. We view the license renewal to be positive validation from
Revenue (C$M) 1 27 192 379 Health Canada of Auroras cultivation practices.
SG&A (C$M) 4.7 14.7 70.4 139.8 Our un-risked analysis for Aurora suggests a valuation in excess of $5.00 per share
R&D (C$M) 0.6 0.2 1.4 2.3 if marijuana is legalized in Canada, supporting our SPECULATIVE BUY rating as the
EBITDA1 (C$M) (6.0) 7.9 80.2 173.2 pathway to the rec market further unfolds this year. We would remain buyers of the stock
EPS2 (C$) (0.04) 0.01 0.15 0.34 ahead of construction milestones for the Aurora Sky facility and significant industry
1Adjusted
catalysts expected in coming months.
2Adj & diluted
3.5
Investment highlights
3
CanvasRx continues to expand its geographic footprint. CanvasRx continues to
expand its presence, growing to 24 cannabis clinics across Canada. We believe that
2.5 CanvasRx is an important driver of the companys patient growth, having facilitated
2
over 6,800 patients registering with Aurora, or ~42% of its patient base.
1.5
Aurora Sky tracking for late-2017 production. Aurora provided another update on its
800,000 square foot Aurora Sky hybrid greenhouse, reporting that one-quarter of its
1 planned footprint has been erected so far. At a total cost of ~$110 million, the facility
0.5 is expected to commence production in late-2017. Full construction is expected to be
complete in 2018, with full production reached the following year.
0
Balance sheet should fund Auroras aggressive growth plans. Aurora ended the most
May-17
Aug-16
Mar-17
Nov-16
Apr-17
Dec-16
Feb-17
Sep-16
Jun-17
Oct-16
Jan-17
Jul-16
recent quarter with pro forma cash and equivalents of $111 million, which we believe
ACB should be more than sufficient to fund the construction of its Aurora Sky cannabis
Source:FactSet
S&P/TSXVentureComposite(rebased)
greenhouse facility and advance its Canadian and international strategies.
Priced as of close of business 28 June 2017 Valuation
We value Aurora using a sum-of-the-parts analysis; the medical cannabis market based
on a DCF model, using a 13.0% WACC and 2.0% terminal growth, and the higher-risk
rec opportunity is valued using a probability-weighted NPV. Based on this analysis, we
are maintaining our target price of $3.25. For Aurora, we note that the entire medical
opportunity represents ~$1.82 per share (providing a stable underpinning to our
valuation), while our risked valuation of the rec market reflects the remaining ~$1.40 per
share in our target price.
Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX)
The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all
the companies and securities that are the subject of this report discussed herein.
For important information, please see the Important Disclosures beginning on page 3 of this document.
Aurora Cannabis Inc.
Company Update
Ave. Price per gram $ 5.60 $ 7.78 7.57 8.21 Revenue Forecasts
EBITDA nmf 29% 42% 46% Enterprise Value / EBITDA 73.5x 7.3x 3.4x
2
Speculative Buy unchanged Target Price C$3.25 unchanged | 29 June 2017 Canadian Cannabis 2
Aurora Cannabis Inc.
Company Update
Investment Recommendation
Date and time of first dissemination: June 29, 2017, 09:44 ET
Date and time of production: June 29, 2017, 09:44 ET
Target Price / Valuation Methodology:
Aurora Cannabis Inc. - ACB
We value the medical cannabis market based on a DCF model, using a 13.0% WACC and 2.0% terminal growth; the higher-risk rec
opportunity is valued using a probability-weighted NPV. Together, these two analyses yield a target price of C$3.25.
Risks to achieving Target Price / Valuation:
Aurora Cannabis Inc. - ACB
Key risks for Aurora Cannabis include, but are not limited to: continued patient uptake in the medical market; uncertainty pertaining to
the potential recreational market in terms of pricing, distribution and regulation; pressure on margins if/when the industry transitions
to a wholesale model; reliance on Health Canada to continue to renew production/sales licenses; the potential for unfavorable public
opinion if products are not used responsibly; increased competition from other LPs if production capacity continues to expand industry
wide; the reliance on agricultural operations that are subject to external factors (climate, etc); and, execution risk and achieving lower
cost production associated with planned facility expansions.
Distribution of Ratings:
Global Stock Ratings (as of 06/29/17)
Rating Coverage Universe IB Clients
# % %
Buy 580 60.99% 40.17%
Hold 271 28.50% 20.66%
Sell 26 2.73% 15.38%
Speculative Buy 74 7.78% 68.92%
951* 100.0%
*Total includes stocks that are Under Review
Speculative Buy unchanged Target Price C$3.25 unchanged | 29 June 2017 Canadian Cannabis 3
Aurora Cannabis Inc.
Company Update
12-Month Recommendation History (as of date same as the Global Stock Ratings table)
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Speculative Buy unchanged Target Price C$3.25 unchanged | 29 June 2017 Canadian Cannabis 4
Aurora Cannabis Inc.
Company Update
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Speculative Buy unchanged Target Price C$3.25 unchanged | 29 June 2017 Canadian Cannabis 5
Aurora Cannabis Inc.
Company Update
Speculative Buy unchanged Target Price C$3.25 unchanged | 29 June 2017 Canadian Cannabis 6